Indian Banks since FY22, have been remarkably successful in transmitting the calibrated hike in policy rates to both borrowers as also lenders over the time curve ably supported by twin synchronous pillars; unconventional yet strategically woven fiscal and other policy supports, and slew of interwoven elastic measures initiated by the regulator aimed at fortifying the financial fiefdom.
The robustness in banking architecture in India of late is revealed by bank credit growth that stood at 20.2 per cent in 2024 (net Rs 27.6 lakh cr), continuing the momentum of FY23 (15 per cent) and moving sizably up from FY22 (8.6 per cent). In turn, deposit accretion picked up in the later part of the year growing by 13.5 per cent in FY24 i.e. net Rs 24.3 lakh cr (though better than FY23 (9.6 per cent) and FY22 (8.9 per cent), revealed a latest report by The State Bank of India.
Interestingly, the aggressive pitch by select banks to woo deposits, amidst fluctuating liquidity constraints, saw banking system raising the deposits rate in H2, despite RBI holding the rate since February 2023.
All scheduled commercial banks (ASCBs) have increased weighted average domestic term deposit rates (WADTDR) on outstanding deposits by 96 bps and weighted average term deposit rates on fresh deposits by 22 basis points while across banking groups, the pass-through to WADTDRs on fresh and outstanding deposit rates has been higher for Public Sector Banks / PSBs than Private Sector Banks/ PVBs.
PSBs have imbibed the competitive spirit in true sense, offering optimal rates to discerning depositors as they galvanize to meet the surging credit demands from economy. A palpable shift in depositors’ behaviors has been the inclination to capitalize on interest rate differentials between core and term deposits, with the incremental share of TD increasing to 93 per cent (estimated) and CASA share declining to 7 per cent in FY24, the report highlighted.
Term deposits lead the game
| With improving economic activities, in FY24, banking business has been robust in H2FY24. Bank credit grew by 20.2 per cent in FY24 compared to 15 per cent in FY23. While, aggregate deposits grew by 13.5 per cent, compared to last year growth of 9.6 per cent. |
With the rising demand for credit, amid tight liquidity conditions, banks have raised their deposits rate in H2, in order to raise fresh deposits, despite RBI holds the rate since February 2023. ASCBs has increased WADTDR outstanding deposits by 96 bps and WADTDR fresh deposits by 22 bps, said the report.
Across bank groups, the pass-through to WADTDRs on fresh and outstanding deposit rates was higher for PSBs than PVBs. With the rise in deposits rate of Term deposits, the incremental share of TD has increased to 93 per cent (estimated) and CASA share has declined to 7 per cent in FY24.
Term Deposits with Senior Citizens
The increase in deposit rates, the higher interest rate differential for senior citizens and the special deposit schemes for senior citizens (for example WE-CARE by SBI) has propelled a tectonic shift in deposits accretion for citizens ably supported by also Government initiatives on SCSS, Mahila Samman Savings Certificate and so on.
There are around 74 million estimated senior citizens term deposits accounts in the country with total deposit of Rs 34 lakh crores. Out of such 74 million accounts, almost 73 million accounts are in the size of up to Rs 15 lakh. By assuming 7.5 per cent interest on Sr citizen bank deposits, RS 2.6 lakh crores interest earned, the report highlighted.
In 2018, we have estimated that there are around 41 million senior citizens term deposits accounts in the country with total deposit of Rs 14 lakh crores. So, in 6 years, there has been an increase of 81 per cent growth in number of accounts and 150 per cent in amounts. The average balance in the accounts has grown handsomely by 38.7 per cent, to Rs 4.6 lakh cr from earlier Rs 3.3 lakh cr, it added.
In recognition of challenges faced by the senior citizen in sunset years with medical and other care needs growing exponentially as nuclearization of families gains velocity, Government of India has deftly ensured superior interest offerings through specialized schemes like SCSS (8.2 per cent RoI with approximately 1.62 lakh cr outstanding) as also card rates of banks having 50-75 bps markup for this segment.
So, the total interest earned by senior citizen works out to Rs 2.7 lakh crore; Rs 0.13 lakh crore from SCSS and ~Rs 2.57 lakh crore from Sr citizen’s bank deposits. By assuming 10 per cent (Average) tax paid by the Sr citizen harmonized across cohorts, the tax mop-up by Government of India would come around Rs 27,106 crore.
The Government has also raised the threshold of TDS on deposits for senior citizens to Rs 50,000 now, possibly working as an additional fillip for deposit mobilization for senior citizens. Separately, APY, a path breaking universal social security scheme initiated by GoI in 2015, along with PMSBY/PMJJBY and targeting the fringe and vulnerable groups mostly, is presently having approximately 5.46 crore subscribers with an AUM of Rs 34781 crore (Feb’24).
The subscribers are slated to receive the fixed maximum pension of Rs 5000 per month (ranging from Rs 1000 to Rs 5000), at the age of 60 years, depending on their contributions, which itself would be based on the age of joining the APY. There is scope to increase the maximum pension amount to say Rs 10000 per month from the existing limit of Rs 5000 per month, for the benefit of senior citizen, the report further stated.
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